Apollo Hospitals Enterprise Ltd

NSE:APOLLOHOSP

Earnings Call Analysis

Apollo Hospitals' Promising Start with Strong Revenue and Growth Plans

Apollo Hospitals reported a robust start to fiscal year FY '24-'25, achieving a 15% revenue increase to INR 5,086 crores. Consolidated EBITDA grew by 33% year-on-year to INR 675 crores. The company added 44 new pharmacy stores and 2 million new users to its digital platform. Pharmacy business revenues grew by 16%. The EBITDA margin in Healthcare Services was 23.6%, with a forecasted margin expansion of 100 basis points. Apollo aims to operationalize four new hospitals within the next five quarters and expects its digital segment to break even in 6-7 quarters. The consolidated PAT was INR 305 crores, an 83% year-on-year increase.

Strong Revenue Growth and Improved Profitability

Apollo Hospitals has had a strong start to fiscal year FY '24-'25, showcasing robust revenue growth across all business segments despite challenges such as election cycles and a heat wave. Consolidated revenue increased by 15% year-on-year, reaching INR 5,086 crores. The Healthcare Services division's revenue grew by 15% to INR 2,637 crores, with insurance patient revenue up by 17%. Overall group occupancy increased by 600 basis points to 68%, and the Average Revenue Per Occupied Bed (ARPOB) slightly rose by over 2% to INR 59,073.

Pharmacy and Digital Platform Growth

Apollo HealthCo, which includes the Pharmacy business, recorded a revenue of INR 2,082 crores, marking a 15% growth. The pharmacy division saw a 16% increase in revenue, supported by the opening of 44 new stores in the quarter, despite delays caused by the election season. The omnichannel pharmacy segment, including private label and generic business, contributed to 16.1% of total pharmacy revenue. Apollo's digital platform, Apollo 24/7, expanded by adding 2 million new users and achieved a Gross Merchandise Value (GMV) of INR 695 crores, representing a 9% growth year-on-year.

Profit Margin Expansion

Consolidated EBITDA was INR 675 crores, showing a substantial 33% year-on-year increase. Notably, the Healthcare Services segment achieved an EBITDA of INR 622 crores with a margin of 23.6%. Apollo Hospitals aims to expand these margins by 100 basis points over the next 3 to 4 quarters by leveraging enhanced volume growth, improved case and payer mix, and optimizing discretionary costs. The offline pharmacy distribution segment of Apollo HealthCo reported an EBITDA of INR 139 crores, up by 11% from the previous year.

New Hospital Projects and Future Outlook

Apollo Hospitals is progressing with plans to operationalize four new hospitals, adding 1,500 beds across key markets including Gurgaon, Kolkata, Hyderabad, and Pune within the next 5 quarters. The management suggests that these expansions, combined with new procedures and technologies like CAR T-cell therapy and ZAP-X, will drive future growth. The outlook for FY '25 remains promising, with expectations of breakeven for the Apollo 24/7 digital segment within 6 to 7 quarters, driven by strong GMV growth and a strategic mix of services.

Insurance and Occupancy Improvements

Insurance coverage among patients has significantly increased, contributing to better occupancy rates across both Tier 1 and Tier 2 locations. The growth in insurance uptake is being witnessed across high-end specialties like cardiac sciences, oncology, neurosciences, and gastro sciences. These efforts, combined with strategic corporate partnerships and retail outreach, are expected to sustain and possibly increase the volume growth seen this quarter.

Managing Digital and Physical Business

Apollo HealthCo's digital platform incurred a notable reduction in cash losses, decreasing to INR 957 crores from INR 152 crores year-on-year, demonstrating efforts towards profitable growth. Apollo 24/7 is on track to achieve breakeven in 6 to 7 quarters. The firm emphasizes a balanced approach between digital expansion and physical store growth, supported by improvements in the pharmacy segment and corporate partnerships. The switch to a lower-cost customer acquisition model aims to maintain growth without significantly increasing operating expenses.

Final Remarks and Strategic Positioning

Apollo Hospitals' management expressed confidence in their strategies for revenue growth, profitability enhancement, and operational excellence. With a diverse set of initiatives, including technology integration, market expansion, and increased surgical volumes, the company is positioned to maintain its leadership in the healthcare industry. The clear strategic roadmap and coordinated efforts across various verticals reflect the company’s readiness to deliver sustained value to its stakeholders.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day and welcome to Apollo Hospitals Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you, sir.

[Mayank Vaswani]

Thank you, Neerav. Good afternoon, everyone, and thank you for joining us on this call hosted by Apollo Hospitals to discuss the financial results for the first quarter of financial year 2024, '25, which were announced yesterday.

We have with us today the senior management team represented by Mrs. Suneeta Reddy, Managing Director; Mr. Krishnan Akhileswaran, Group CFO; Dr. Madhu Sasidhar, President and CEO of the Hospitals Division; Mr. Madhivanan, CEO of Apollo HealthCo; Mr. Sriram Iyer, CEO of AHLL; Mr. Sanjiv Gupta, CFO of Apollo HealthCo; Mr. Obul Reddy, CFO of the Pharmacy division; and Mr. Ashish Maheshwari, CFO of AHLL.

Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties in our investor presentation. Documents relating to our financial performance have been circulated earlier. These have also been posted on the corporate website.

I would now like to turn the call over to Mrs. Suneeta Reddy for her opening remarks. Thank you, and over to you, ma'am.

[Suneeta Reddy, executive]

Thank you, Mayank. Good afternoon, everyone, and thank you for taking time to join this call. I trust that all of you have received the earnings document which was shared earlier today. We are delighted to report a strong start to fiscal year FY '24, '25 with our performance in quarter 1 FY '25.

We have seen robust performance across all of our business segments despite the headwinds of election cycles and heat wave, culminating in strong revenue growth and improved profitability on a year-on-year basis. In prior quarters, we had indicated efforts towards improving volumes by augmentation of medical teams, which are now demonstrating with us.

Against this backdrop, let me walk you through the financials for the quarter. Our Healthcare Services business witnessed a strong 15% year-on-year revenue growth to INR 2,637 crores. Within this, the revenue from insurance patients saw a year-on-year increase of 17%. There is increased consumer movement towards high-quality providers and we will strengthen this by deepening our partnership with corporate and our retail outreach.

IP volumes grew by 11% year-on-year, with growth across all markets. High-end tertiary specialties like cardiac sciences, oncology, neurosciences and gastro sciences, which are our areas of strength grew at a healthy rate.

Higher secondary specialties too witnessed robust growth due to patients preferring high-quality organized sector care enabled by insurance products. Overall, occupancy across the group has risen to 68%, an increase of 600 basis points on a year-on-year basis.

ARPOB increased a little over 2% year-on-year to INR 59,073. We believe that ARPOB growth will improve over the next few quarters with stronger growth in surgical volumes and better case mix. Our consolidated revenue grew by 15% on a year-on-year basis to INR 5,086 crores. Revenues from Apollo HealthCo were at INR 2,082 crores in quarter 1, growing at 15% year-on-year.

Given the strong efforts for stock liquidation in the front-end stores combined Pharmacy business revenue grew by 16%. 44 new stores were opened this quarter, the election season resulted in lower store expansion due to a slight delay in approvals. We expect this pace to pick up in the subsequent quarters which should also improve the growth momentum of the business going forward. The Private Label and Generic business of the omnichannel pharmacy was at 16.1% of total pharmacy revenues.

Our digital platform, 24/7, added 2 million new users. The platform GMV was at INR 695 crores, representing a 9% growth over the same period last year. Revenues from Apollo Health & Lifestyle also grew by 15% year-on-year to INR 366 crores in quarter 1 FY '25.

Consolidated EBITDA was at INR 675 crores registering a 33% increase year-on-year. Within this, the Healthcare Services EBITDA was INR 622 crores, registering a growth of 15% year-on-year, and Healthcare Services margin was 23.6%. Our investment in clinical talent, marketing costs are helping to drive this double-digit volume growth.

We believe enhanced volume growth, improvement in case mix and payer mix and a focus on optimizing discretionary costs will drive margin expansion by 100 basis points over the next 3 to 4 quarters. The off-line pharmacy distribution in Apollo HealthCo recorded an EBITDA of INR 139 crores, representing a year-on-year growth of 11%.

The digital platform cash losses, excluding ESOP, were at INR 957 crores, a significant reduction from INR 152 crores in the same quarter last year, demonstrating the company's efforts to drive profitable growth. Apollo HealthCo has therefore reported an EBITDA of INR 23 crores, extending its trajectory of positive EBITDA.

AHLL recorded an EBITDA of INR 31 crores, delivering 33% year-on-year growth and an improved margin of 8.4% compared to 7.3% in quarter 1 last year. Consolidated PAT was INR 305 crores, growing 83% year-on-year within the Healthcare businesses.

The outlook for FY '25 continues to be promising. We are dedicated to driving growth and enhancing profitability through a series of strategic initiatives.

In Healthcare Services, we are expanding our market bond fees and uncovering latent demand through better use of technology and business intelligence tools. We are intensifying efforts to increase surgical volumes at our centers of excellence, supported by an expanded medical team and advanced procedures like CAR T-cell therapy and ZAP-X.

Our plan to operationalize 4 new hospitals adding 1,500 beds in key markets is progressing as planned. We anticipate operationalizing new facilities in Gurgaon, Kolkata, Hyderabad and Pune within the next 5 quarters.

We are on track to achieve breakeven for Apollo 24/7 Digital segment within the next 6 to 7 quarters, supported by strong growth in GMV and optimum portfolio mix. Transaction, integration and healthy growth in off-line Pharmacy Distribution revenues will drive Apollo HealthCo towards a [ status ] strategic intent in the next 3 years. Our Diagnostics business is also poised for strong healthy growth driven by investment in new capacity, expanded test menu and an improved margin.

On that note, I would like to hand it over to our moderator and open the line for questions. I have our CFO, Krishnan with me; Dr. Madhu, CEO of the Hospital Division; Sriram Iyer from AHLL; as well as Madhivanan -- Obul Reddy and Sanjiv; and Madhivanan, the CEO of Apollo HealthCo, who are all here with me to take your questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Binay Singh from Morgan Stanley.

[Binay Singh, analyst]

Congratulations for a good start to FY '25. My question is on the volume side. We've seen a nice pickup in the inpatient volumes. At the same point, we are also seeing a sharp pickup in the insurance coverage. Like in the last call, we called it out to 40% to 43% is insurance cover. This time, it's around 47%. So are they too in some ways linked or this is more coming from our efforts to revise some of the smaller hospitals in Hyderabad and some efforts in Karnataka that we earlier talked about? That's the first question.

[Krishnan Akhileswaran, executive]

So I think we are seeing insurance growth actually happening across. It's not necessarily corrected only to the other locations, et cetera. And we are seeing it across both Tier 1 and the Tier 2 locations as we speak. So what's happening with the insurance clearly is that one is earlier, as we said, we were getting -- while we were getting most of the high-end cases earlier, we are also getting a lot of secondary care cases with the Insurance business penetration.

And there has been a deliberate effort that we have taken to penetrate into corporates, et cetera, in most of the regions. So we are seeing that benefit, and that benefit is yielding in better occupancies. And some of that obviously has resulted in a bit of a lower ARPOB, but that's -- the more important thing for us is the benefit that's coming from occupancy, which is sustainable, and it's going to help us into the next few quarters as well.

[Binay Singh, analyst]

Right. So [ whenever ] the understanding is correct, right? This insurance pickup of 200, 300 basis points that we've seen quarter-over-quarter, is going to be leading to better occupancy and at the margin lower ARPOB?

Linked to that, when we talk about ARPOB 7% outlook for the year, and we've said that we do expect the case mix to improve in the coming quarter. Is that already visible to us after the -- as we are sort of getting out of this election season and moving out of the monsoon season?

[Krishnan Akhileswaran, executive]

July has been good, and I think we should be able to see better pickup in this quarter.

[Binay Singh, analyst]

That's great. And lastly, just on the Diagnostics side, I do understand there's a little bit of seasonality in quarter 1, anything else you want to call out for the sequential margin drop that we've seen in the diagnostics side?

[Suneeta Reddy, executive]

Sriram?

[Sriram Iyer, executive]

Yes, as rightly pointed out, it was a bit of a seasonal impact that we had. And I think we have also made certain investments on adding specialty manpower and focusing on some of the segments that were not present earlier. So certain investments have gone on those in the quarter 1. And starting this quarter, we're able to see a much higher growth rate, both on the revenue and on the margin front.

[Operator]

[Operator Instructions] Next question is from the line of Neha Manpuria from Bank of America.

[Neha Manpuria, analyst]

On the Hospital business, ma'am, you mentioned 100 basis points margin expansion over the next 3 or 4 quarters plus the fact that it seems like increasing insurance penetration could be a headwind for ARPOB.

So would this margin expansion essentially depend on our ability to improve occupancy from here, which we usually do see given first quarter is seasonally slow. Is that the right way to sort of look at the margin expansion that you've talked about?

[Suneeta Reddy, executive]

So I think there are 3 levers for margin expansion. The first of course is payer mix. And we've spoken about that and how insurance has really helped us in the sense contributing to not only volumes but margin. And the second is, over a period of time, we will be focusing on international, and therefore, better ARPOB. The third, of course, is case mix, where this quarter, there was lesser surgical volumes and [ electives ]. And we believe that in the next 3 quarters, we will see an improvement coming from that. And of course, there is tariff revision of 4% that will play out within the next 4 quarters. So all of this combined will give you an improved ARPOB, looking at an ARPOB increase of 7% for this year.

[Krishnan Akhileswaran, executive]

Another point that we've had to -- ARPOB is not a headwind for insurance. That's something that I think it's important that I should correct you here. Clearly, the average revenue per patient that we have from in insurance is equal to or higher than the average revenue per patient that we have from walk-ins. The reason being some of the insurance patients opt for higher category of rooms as we have said in the past. ARPOB is just a derived number, which is a combination of both occupancies and ALOS.

So I think from the perspective of volume, you're seeing the volume growth and if it's volume into value, we are not going to be seeing any deterioration in our revenue pickup because of insurance. On the contrary, it will only be positive. So the ARPOB has to be seen in the context of medical case mix, et cetera. It's not because of insurance. It's not a headwind from insurance.

[Neha Manpuria, analyst]

So in this quarter, the lower ARPOB is essentially because of the lower surgical mix.

[Krishnan Akhileswaran, executive]

It is -- yes, you can say that or you would rather say that better -- higher medical mix. It's how we put it.

[Suneeta Reddy, executive]

Today -- this quarter was higher...

[Neha Manpuria, analyst]

Okay. Understood. And my second question is on the 24/7. It seems like our GMV is sort of, on a sequential basis, a very slow growth. I understand we have tweaked the discount rates, and that's probably impacting the GMV momentum quarter-on-quarter.

How should we think about balancing how we get back GMV growth with the target of achieving breakeven? Because I thought -- you also mentioned in your opening remarks that we need to see GMV growth to achieve that breakeven. So just trying to understand how we'll balance the both -- balance both and what we're trying to do to improve that GMV traction.

[Suneeta Reddy, executive]

Madhivanan, you want to take this?

[Madhivanan B, executive]

Yes, ma'am, I hope I'm audible. Good afternoon to all of you. See, even in the last quarter, we have spoken about how our operating model was changing. The earlier GMV growth was being substantially driven by a very high percentage of marketing spend in acquiring new customers.

Over the last 2 quarters, we have changed that operating model, some of your digital kind of an [ origination ] to a much stronger omni approach. We have studied it very well, and we realized that this works very -- in fact, even in multiple geographies across the world. Our omni model is a very, very viable model for both our offline business as well as the online business. So this transition is in place.

I just wanted to say that our number of new customers is slowly increasing, give us around another quarter or so for us to get back into a growth path. It's not that we have degrown, but our growth rate has been much in the range of maybe around 4% to 5%, we would expect it to be much bigger. You will see that happening in the next 2 quarters.

In terms of initiatives, we are working very strongly on our loyalty program because this is what again drives GMV in a big way. So a common loyalty program between both the off-line pharmacies and the digital pharmacies is contributing substantially well. And our revenue from customers who operate on both sides is doing well. So I would ask for [ forbearance ] over the next maybe this quarter and the next quarter before the growth story starts picking up in a sustainable manner.

[Neha Manpuria, analyst]

So more like fourth quarter of fiscal '25 is when we should see a step-up in growth?

[Madhivanan B, executive]

You would -- I can actually say maybe even in Q3, but yes, to be on the safe side, Q4. But at the same time, even the operating expenses are being kept in line, [ fixed part ] of profitability we should be on course.

[Neha Manpuria, analyst]

And what about the new businesses, sir? I think we talked about that also in the last quarter, the new areas that we are focusing on. Is that gaining traction?

[Madhivanan B, executive]

Yes, so two things. From a regulatory perspective, one of the big initiatives is going to be the Insurance business, primarily health and term. But we are in the process of getting our approval from IRDAI. We expect it to happen by October. Til the time, the approaching -- the approach is more of a monetization module. So we have been experimenting multiple journeys.

The moment we get the corporate agency, we should be able to launch the business in a very full-fledged manner. And the difference between people who sell insurance on the -- in the rest of the industry versus us would be it would be incorporated within our own existing customers as well as within the incremental flow.

And we expect this to be our cost of acquisition to be much lower and the story should play out. So insurance, expect the licenses to come by October. And therefore, the last quarter, you'll start seeing some good traction across 2 to 3 products.

And on the Digital Therapeutics, we have had a bit of a change in the model. We are working very closely with both the hospitals and the clinics as against doing it purely digitally and help facilitate. So here again, the omni approach will be picked up. So we're doing 1 or 2 experiments and we expect that business is also to pick up in close collaboration within AHL -- AHLL and [ AHEL ]. So these are the 2 businesses that we are focusing.

One more channel, which we are going to be pushing, which will help us give us the GMV is the corporate channel. Again, we are working in a very synergistic model with the hospitals group and the clinic group and finding out how we can be the digital front end to maximize corporate. So all the 3 areas, Corporate, Insurance and Digital Therapeutics within the growth will drive value for the Digital.

[Operator]

[Operator Instructions] Next question is from the line of Kunal from Macquarie.

[Kunal Dhamesha, analyst]

Just continuing on the GMV growth, I think we had earlier put out a guidance of around 50% growth. And since we are now expecting the growth to start from quarter 3, quarter 4, is there a revised guidance that we are putting out for this GMV for 24/7?

[Suneeta Reddy, executive]

Madhivanan?

[Madhivanan B, executive]

No, no, we are not putting. We are on core. It's just that I see, originally, we were expecting the Q2 closure will happen maybe a month, year or so, but we are very much -- so we are not revising the guidance from our perspective. Sanjiv, if there is any other input we have, both in terms of our operational profitability as well as we are on course for whatever we have [ commented ]. Sanjiv, if there is anything else you want to add.

[Sanjiv Gupta, executive]

No, I think you said it right. At this stage, we do not believe that we could be revising the numbers. I'm mindful to the fact that we talked about 50% growth over INR 2,700-odd crores of GMV that we did in the last fiscal year, which makes it to about INR 4,000 crores. I think at this stage, at least all of us strongly believe that there is no reason for us to revise the numbers.

[Kunal Dhamesha, analyst]

Sir, which [ combining ] business you expect to ramp up so fast out of 2, 3 lines that we have now, which will drive the growth. Is it still the pharma or delivery would drive growth or any other line of business?

[Madhivanan B, executive]

No. So pharmacy continues to be a flagship. So in fact, last month, we did one of the highest numbers ever. So that's why we feel the trajectory is back. While overall, the industry on the digital side did not grow. For overall pharmacy, deliveries increased. The online part of it has not been growing [ in a big way ] because I think all players have been rationalizing their discounts and trying to build a sustainable model with the breakeven being one of the primary targets.

Pharmacy will continue to grow, like I told you both the corporate side of the business and the new customer acquisition will continue in a hybrid model. The second big area where we are seeing a very nice lift is our Contract business. From an average of around 100,000 contracts which we used to do, the OPD contracts around the last quarter, this quarter, we have been clocking anywhere in the range of 150,000 to 170,000 [ contracts ]. What this results in is a feeder into both the Pharma business as well as the Diagnostic business because it's the recommendation that drives the story.

And so these 2 business is also seeing an uptick. So Diagnostic business being seasonal like Sriram highlighted, we, again, talked very good numbers last month, and we expect the numbers to continuously keep growing forward. So primarily driven by pharma, supported by [ contract ] and diagnostic [ falling in its place ].

[Kunal Dhamesha, analyst]

And one on the Hospital business, the volume growth is good this quarter, and it has also led to uptick in occupancy. But the same has not played out in terms of operating leverage in terms of profitability, right? So an ARPOB has also been much lower, which we expect to grow faster now and you have taken here. So 2, 3 questions here.

One is the ASP hike of around 4% is the state, that will be across channels? Or is it just a cash patient or insurance patient? And why has the higher occupancy not driven higher profitability?

[Suneeta Reddy, executive]

I think higher occupancy not driven higher profitability will start playing out in the next few quarters. Like we said, we have absorbed a lot of costs. The second thing that we had mentioned is that we had a lot of medical admissions this quarter. And therefore, medical admissions resulted in an increase of ARPOB of only 2%. So moving forward, we think that you will see the benefit of operating leverage.

[Krishnan Akhileswaran, executive]

And we did see the EBITDA margins if you're looking at Q1 over Q1. Just to remind you, if you look at Q4 of last year, our EBITDA margins was at 23.1%. That is because we had added doctors and marketing costs. So from the 23.1%, we are seeing it come to 23.6%. So that is sort of quarter-over-quarter basis, there is a 0.5% improvement in EBITDA margin that we have seen, which is because of this operating leverage.

You should -- as we said, we are looking at a 100 basis point increase, which had come over the next few quarters. We have also seen -- we had said last quarter that we had seen some increase in our IT costs because we have increased at least 0.25% to 0.3% has got impacted because of higher IT costs and cybersecurity, et cetera, which we have invested in.

All of that has now gotten in the number that you have, it has got absorbed. So going forward, you should see that happen as well.

[Madhu Sasidhar, executive]

If I could just give some color to what A.K. said, this is Madhu Sasidhar. We added about 102 doctors in the last quarter in Q1, that we've brought on board, with a very negligible attrition of about 3 or 4 doctors. The quarter prior to that, we added 84 doctors. So this have been a very active time of medical team expansion. Many of those doctors are starting to get more and more productive. So as when Suneeta said, we expect that operating margin to improve over the next few quarters.

[Kunal Dhamesha, analyst]

Sir, is this hiring happening at a much higher level in terms of senior doctors, et cetera, because we have a base of 50, 500 full-time doctor, right? So adding 100, 200 should not move our cost line items too much.

[Madhu Sasidhar, executive]

So you're right. So we are recruiting some of these doctors that are -- who are star doctors and leading providers in their space. These are not giving you junior doctor recruitment that we don't count that in the consultant recruitment numbers.

[Unknown Executive]

There's an incremental INR 50 crore difference in the doctor cost.

[Kunal Dhamesha, analyst]

180 doctors that we have recruited?

[Unknown Executive]

Same period last year with the business of INR 50 crores.

[Kunal Dhamesha, analyst]

And INR 50 crores is quarterly. So around INR 200 crores is the annual.

[Krishnan Akhileswaran, executive]

Yes. And you should look at the volume growth, right? I think it's important to look at margin growth, which we have said. But I think the important thing for us is the volume growth, which is something that we are very happy about. And the volume growth is more sustainable and it can keep -- and it can -- it will definitely [ yield ] the margin through operating leverage as well going forward.

[Madhu Sasidhar, executive]

And the volume growth has been very intentional. We have driven that volume growth very intentionally. We have been intentional about the markets that we have driven that volume growth in. So that's why we believe it is sustainable as well.

[Operator]

[Operator Instructions] Next question is from the line of Madhav from Fidelity. Madhav, may I request you to unmute your line and go ahead with your question, please.

[Madhav Marda, analyst]

Am I audible.

[Operator]

You're audible.

[Madhav Marda, analyst]

Yes. I just had one question on the Apollo 24/7. So if you look at the pre-OpEx EBITDA margin at 13.6%, which is reported in Q1, but seems to be moving up steadily through the past few quarters. Should we think that this number kind of has more legs to improve as we go through rest of FY '25. And if you could help us understand what are the key levers for that number moving up.

[Sanjiv Gupta, executive]

Yes. So Sanjiv this side. So two, three things. One is that our mix on the Pharmacy side is better versus the last year. It was at about 35% to 36% versus 32% same quarter last year. That helps in this margin accretion, which is up 13.6% versus 10.9% same time last year -- same quarter last year.

So we expect this to continue to move upwards. Would it be 25%? I can't say at this stage, but we are looking at to hit a number closer to 20% in the next 1 to 2 quarters. And apart from Pharmacy, as we move into new verticals as Mr. Madhivanan talked about that we get into Insurance, we get into Digital Therapeutics along with the Hospitals.

These are the 2 -- and app monetization, which we just started. So these are very, very margin accretive to the business. And given it is a technology-driven services from that sense, the entire margin goes back to the EBITDA.

So I believe those verticals, those new segments will also add on to this. So I think we should expect in next 1 to 2 quarters to head this to around 18% to 20%. And while Pharmacy, we continue to support this margin.

[Madhav Marda, analyst]

And you're saying that 13.6% has legs to move closer to 20% this year itself as we move through the rest of the year?

[Sanjiv Gupta, executive]

Let's see that in next 2 to 3 quarters, how it pans out, but the goalpost is to hit 20% by this year-end.

[Madhav Marda, analyst]

That's quite helpful. And just on the OpEx cost as well, it's at about INR 130 crores, and we've controlled it a fair bit. So should we expect this to stay in this range same for the rest of the year.

[Sanjiv Gupta, executive]

I think operating expenses at current level would stay for a little while, depending upon the investment that we're doing into the new segments. And we should expect a little bit of further cost optimization to the current levels of INR 130 crores. Depending upon the investment that we require in the new segments and how much time do they take to start giving positive EBITDA. So that is how I would see that some reduction and there will be a little bit of investment into the new segment also.

[Operator]

Next question is from the line of Tushar Manudhane from Motilal Oswal.

[Tushar Manudhane, analyst]

Sir, just on the -- if I look at region-wise, ARPOB growth, like except North, most of the other regions have been muted or in fact, declining the ARPOB. So is this sort of peaking out in terms of ARPOB growth and so not just at Apollo, but maybe if you could help us understand at the industry level. And then subsequently, the growth would be more driven by the volume as is reflected in this quarter.

[Krishnan Akhileswaran, executive]

So two things, right? From our side, we would still like to believe that -- the inflation of 4% to 5% is something that we will continue to do. And hence, that will start reflecting clearly. The other thing is the function of occupancy as well as ALOS as I said.

So here, when we are getting -- when we are focusing on higher volume growth, et cetera, across and into using that to get secondary care cases as well as higher oncology, some of that reflects in a bit of a lower ARPOB because oncology has been seeing a stellar growth. We are the largest oncology operator in the country.

It will help us get margins, but ARPOB may not reflect the same because if you look at a chemotherapy, the chemotherapy ARPOB is lesser than the ARPOB of the -- of hospital -- of our surgical, et cetera. But what happens is the flow-through is visible for us. So ARPOB should not be looked at from the perspective of margin expansion. It's only -- again, I'm saying that it is something that you should understand this more as a lever.

But if you look at the volume growth and the value growth, so long as it's there and if you're seeing the volume growth, we have always guided that we should be looking at mid-teen kind of overall revenue growth. So as long as that's visible and we should see the margins expand.

[Suneeta Reddy, executive]

And I think it's important to recognize that in metros, our ARPOB is very healthy, averaging around INR 70,000. So clearly, it's because we also have Tier 2 and Tier 3 that you see the average ARPOB which is around INR 53,000. So clearly, there is room for expansion, and we will continue to look at that. But please understand that this is an average of Tier 1 metros and Tier 2.

[Tushar Manudhane, analyst]

Understood. That's really helpful. And from a bed addition perspective, given the way the projects are going to pan out, it seems next 4 quarters, at least, we'll have improvement in occupancies on the existing beds and then subsequently, the additional bed would help drive growth. Is my understanding correct?

[Suneeta Reddy, executive]

Yes. That's correct.

[Krishnan Akhileswaran, executive]

And next year, we are seeing good additions in some of our existing markets also like Calcutta and Gurugram also is -- in some way for us, it's an existing market, right, because we have Delhi, which is not getting consolidated, but we know Gurugram very well, and that will also come next year. So we are quite -- I think next year, I would see us get a good number of that addition.

[Tushar Manudhane, analyst]

So directionally, while we are improving the profitability at the existing sites, but these OpEx coming on in FY '26, so if you could just help understand how the profitability would look in Hospital business for FY '26.

[Krishnan Akhileswaran, executive]

We have a good big base of EBITDA now. So that is a very important thing that we should look at because if you look at by end of the year, we should have significantly large EBITDA base. And hopefully, by that time, we should have also seen the 100 bps expansion in margin that we have been guiding to -- have gotten into our books.

From there on, given that we are looking at relatively -- we don't think that the operate -- these losses will be significant. So we would think that 100 to 150 bps lower from that level is the maximum that we will see the EBITDA margin fall.

[Tushar Manudhane, analyst]

And on the off-line Pharmacy side, like we added 44 stores. So this year, probably what would be the run rate of store additions?

[Unknown Executive]

We're around 500 to 550 this year as well as planned. The Q1 is lower because of the elections and other delays. Overall, it will be 500, we will be on track for that.

[Krishnan Akhileswaran, executive]

Q2 has already started to ramp up well.

[Tushar Manudhane, analyst]

Understood. And any scope of improving the margins for off-line Pharmacies from like 7.6%?

[Unknown Executive]

This is at the back-end Apollo Pharmacy Distribution level, that margin -- that is a [ structured ] margin. As you know, Apollo HealthCo supplies only for Apollo Pharmacy's front-end business. So it has a fixed retail margin to be retained at this level. So that if you notice last 8 quarters operated within a range of 25 basis points as we see the margin expense in the front end.

[Operator]

Next question is from the line of Abhinav Ganeshan from SBI Pension Funds.

[Abhinav Ganeshan, analyst]

Just had 2 very brief questions. First one was your occupancy has gone up 600 basis points year-on-year. So can we have no similar kind of occupancy for the rest of the year?

[Suneeta Reddy, executive]

Yes. Yes, we can. If not, then we'll [ improve ] it.

[Abhinav Ganeshan, analyst]

Okay. That is very helpful. Second thing is as a part of your opening remarks, you had talked about expanding in few locations like Pune and Gurugram. Which are the other locations that you have spoken about?

[Suneeta Reddy, executive]

So the first one is going to be Gurgaon, then comes Hyderabad. But then will be Kolkata and Pune. These are the 4 that we're focusing on. We also have brownfield expansion in Mysore, which is 140 beds.

[Operator]

[Operator Instructions] Next question is from the line of Damayanti Kerai from HSBC.

[Damayanti Kerai, analyst]

Just want to understand like what was the contribution from international patients during the quarter? And what kind of impact you're expecting due to change in Bangladesh, which I suppose is one of the largest market for you in terms of international business contribution?

[Madhu Sasidhar, executive]

Yes. So Bangladesh is about 30% in terms of our international. But as a percentage of our total revenue is about 2%. We've seen some throughout the first quarter and into this quarter as a combination of elections and the more recent political issues, some drop in volume. We are hopeful that this will come back very quickly. We are just monitoring the situation very closely.

[Damayanti Kerai, analyst]

Okay. So very broadly, this 8% to 10% kind of contribution from international patient is very much there for you.

[Madhu Sasidhar, executive]

Yes. And there are other markets that we are looking at as well. So over the past year to 2 years, we've been actively exploring other international markets as well, which will continue to expand during this time.

[Damayanti Kerai, analyst]

Sure. And one question on your volume pickup, which we have seen during the quarter. So I understand like your efforts over last few quarters is given this strong volume pickup. But when I look at AP Telangana and Karnataka, there's very strong pickup in the OP volume part.

So can you explain if there is some seasonal element there? Or like, I guess, very strong around 50% for Karnataka and then 40% for AP Telangana in terms of OP volume pickup?

[Krishnan Akhileswaran, executive]

Yes. So these volumes are mostly on-site health checkup volumes and the outpatient volumes, which has come in because we have been doing a lot of -- as we said, as part of our insurance penetration, et cetera, that we have been planning, there has been a lot of corporate outreach efforts that we have been making.

So one of the corporate outreach effects -- corporate outreach has also been health checks, and we have seen good increase in some of those health checks in the corporate. So that results in newer registrations into our system, which has been something that we have been focusing last year on both Hyderabad as well as Bangalore and that whole region, which is why you're seeing a higher increase in the outpatient volumes there.

[Damayanti Kerai, analyst]

Sure. So this could be feed into your IP volume pick up, right? So what kind of IP growth you're expecting, say, for this year, 11% in 1Q definitely a very strong number to look at. But for full year, what are your expectations?

[Madhu Sasidhar, executive]

Yes. So this sort of primary care outreach does feed into our inpatient volume. If you were to allocate all of it together, roughly about 4% across the board is an inpatient conversion number that we -- so we will continue this level of outreach because, as you said, it is accretive to both our Diagnostic volume, outpatient Diagnostic volume as well as our inpatient volume.

[Krishnan Akhileswaran, executive]

We wouldn't be able to guide you for the overall volume growth, but I think we have said that we should be seeing good volume growth for this year. This year's focus is volume growth, and we are continuing to focus on that.

[Damayanti Kerai, analyst]

And my last question is a clarification on your EBITDA margins for next year. So with 4 units coming on board, did you mention from the level which say like we will end up in FY '25, there will be 100 to 250 basis point loss at max because of the new beds coming in?

[Krishnan Akhileswaran, executive]

So existing should ideally improve, as we said, 100 bps in this quarter and 100 bps this year by next 3 quarters and hopefully go up a bit more in the next year. And then there will be some reduction because of the new units coming by 100 to 150 bps.

[Operator]

Next question is from Shyam Srinivasan from Goldman Sachs.

[Shyam Srinivasan, analyst]

Going back to the Platform GMV growth of 9%, right? The Pharma AOV has grown 15%. So is it the other businesses like consultancy, right, or diagnostics that have declined. So what explains the slower growth?

[Sanjiv Gupta, executive]

I can take this question. So Sanjiv this side. Yes, while the exit numbers of the pharmacy average order value kind of grew which is INR 1,072 versus INR 935 a year back, I think Q1 has always been slight -- we have seen that [ IPP ] transactions also fall down from the online side a little bit in Q1.

But I think as far as in Diagnostics and the Other side of the business is concerned, we were okay. So I think the drop is only with respect to the Other side of the business, otherwise, yes. And that is the reason you will see a muted growth of about 9% in this quarter versus the last year.

[Shyam Srinivasan, analyst]

And Sanjiv, what gives us the confidence that we can do 50%, 60%, 70%, 80% in the remainder of the year?

[Sanjiv Gupta, executive]

I think -- see, this is what Mr. Madhivanan also talked about that one is that we strongly believe that the change of the model, which resulted into moving to an [ omni ] acquisition of customers, a lower discount that is happening. These two things had an impact on our Pharmacy GMV for good 5 to 6 months in the past.

But as we see July, numbers have started picking up. And we believe that the change in the operating model, whatever impact, that would impact only [ retail ] current quarter end or maybe some bit in the next quarter? So this is one point.

So Pharmacy will start picking it up as we move forward. Second thing is that we also have play on the corporate and partnerships, which is yet to kick in as you understand that typically, these partnerships take a little bit more time to certify.

So I guess the -- some bit of growth will also happen in Q3 and so that is the second element. And apart from the fact that we've got the Insurance and Other segments to also kick in. And Q1 has always been a muted quarter for us even in the last fiscal year also versus prior to that.

So I think we still have confidence that the 50% growth over the previous year numbers is what we look at in the current year. And I think at this stage, as we also gave the answer to one of the questions on revising the guidance if there is any, I don't think there is any worry at this stage. We've got many initiatives which are working in parallel, and we strongly believe that we come back on the group side.

[Shyam Srinivasan, analyst]

And lastly, on this one, the EBITDA margin for the 24/7 [indiscernible] just on that piece.

[Operator]

Sorry to interrupt you, we are losing your audio.

[Shyam Srinivasan, analyst]

I meant that Apollo 24/7, there was a breakeven guidance of 4 to 6 quarters that was announced, I think, last quarter or maybe before. Are we sticking to just that piece also breaking even?

[Sanjiv Gupta, executive]

Yes, we are sticking to that guidance. And if you notice in the past also when, prior to the Digital segment, which we call it Apollo 24/7, when we had suggested that the Apollo HealthCo will get breakeven in Q4 FY '24, which happened in Q3, one quarter in advance.

And similar to that, we also gave the guidance in Q4 that Digital business will get breakeven in 6 to 7 quarters. We are sticking to our promise. The entire management team and down below is working towards that common goal.

So at this stage, I think all of us need to believe to this point that Digital segment will also break even in the next 6 to 7 quarters.

[Madhivanan B, executive]

So if I can comment for just 30 seconds, we are reasonably confident that the combination of growth in a calibrated way, along with the breakeven goal that we have sort of given guidance to, we will stick to it. And that's where -- and effectively, we are moving away from, like I told you, I'm just being [ totally ] confident from a very high cost of customer acquisition model into a much more stronger omnichannel combined with loyalty.

So that is what will facilitate growth, not at an exorbitant operating expense model. So both on the EBITDA side as well as on the growth side, we are reasonably [ on close ]. And we expect -- this particular change took time, and we are seeing the positive. So we stick to our end.

[Shyam Srinivasan, analyst]

Understood. Now my last question is just on the diagnostic piece. While our network has grown 16%, our top line has grown 8%, you shared in the remarks about seasonality, but seasonality Y-o-Y should not matter, I presume. But anyway, if you could just tell me what happened in further slowdown. If I were to look at industry tier, we have seen them grow between 12% and 14% and despite a [ expansion ], we seem to be growing slower.

[Ashish Maheshwari, executive]

Ashish here. I will take it. In Q4, we had few one-off gains, which led to a margin expansion as well and had improvement in margin, which was there. Two of those Q4 one-off gains were related to: one, of course, being the year-end closing, we had a reversal due to any kind of turnover-related discounts that were factored during the course of the year. And once the year-end closing happened and when we knew the final numbers, then the margin accretion and the improvements and the reversals had an impact. That was approximately around INR 2.6 crores to INR 3 crores, number one.

Number two, we also had an impact due to the year-end reversal on account of any kind of leave encashment and PLI, which is on the accounting and the [ NPS ] side. Because during the course of the year, the accruals are based on the current manpower trends. And at the end of the year, there is actuarial valuation that takes place. That impacted to almost like INR 1.5-odd crores. In case if we factor that in, our margins were almost in similar lines.

Secondly, the seasonality factor, which Sriram also earlier said during the call. During Q1, we have made some new expansions wherein the revenue kind of potential that we expect, the costs are -- whereas the revenues are not quite there in the Q1, which we expect to come in Q2 onwards. And hence, the overall impact is also factored in Q1, which was not there in Q4. And this is the prime reason why we've had the decline compared to the last quarter.

[Operator]

Next question is from the line of Kunal from Macquarie Group.

[Kunal Dhamesha, analyst]

Just one on the ARPOB growth. Just trying to understand a bit more. So we are saying that the medical mix was higher in this quarter, but then quarter 2, quarter 3, again, it's a higher medical mix because of the overall monsoon seasonality, right?

So just trying to understand that how confident are we in achieving that 7% ARPOB growth? And secondly, the inflation hike of around 4%, 5%? Is it in a particular channel? Is it for cash patient? Or is it for insurance patients? How should we think about it? Is it also hospital focused more in metro or nonmetro?

[Krishnan Akhileswaran, executive]

Yes, I think I would again want to repeat, I think maybe I'm happy to do one call outside. ARPOB is not as much a lever for our EBITDA growth, et cetera, because average revenue per inpatient has grown by 4%. Inpatient volumes have grown by 10%. Volume into value equal to revenue growth.

ARPOB is just the perspective of how each of our beds, what is the revenue per occupied bed. And so long as we get incremental volumes and if the ARPOB of that incremental volume is a bit lower, it is -- it shouldn't really matter for us. And that is exactly what I said when we are penetrating into corporates, we are penetrating into insurance, penetrating and getting more chemotherapy volumes to oncology, et cetera.

Some of that ARPOB -- even if the ARPOB is a bit lower, it shouldn't matter for us. So we are -- the focus is not on ARPOB. ARPOB is just a derived number. Let's see how it goes during the year. It will be higher than the current levels, and I don't want to guide specifically for that 7% either, though we know that, that is something that we will get over a period of time.

So this year, I think it is a volume-driven growth, and we should continue to focus on that.

[Kunal Dhamesha, analyst]

Sure, sir. And when I look at the slightly larger picture across our segments, I think there has been talks about getting Corporate business, large accounts, et cetera. So is it fair to say that there has been some incremental allocation towards getting the B2B business and would it have any impact on our cash patient over a longer run because this B2B business in any industry generally comes at a lower profitability, right? While it may increase the volumes initially, but then it can actually counter the cash patients, et cetera.

So how should we think about this Corporate piece, which we have been talking across Hospital business as well as online business as well?

[Krishnan Akhileswaran, executive]

Sure. When we say corporate, I think it's important that you understand that when we talk of corporate or private corporate for that matter, it is coming -- we are -- what we -- what increases for us is the Insurance business, people covered through private insurance. As you know, that's a market which is growing by 35%. We are seeing significant penetration in the overall coverages. And last -- when we say corporates, we are talking of large corporates like HDFC, ICICI, the likes of all the big 4s, et cetera, and the IT companies, all of their -- all of them are covered through private insurance.

So -- but the outreach through corporates is more of something that we outreach to the employees of the corporates, the employees then come into our systems through their insurance coverages. So we don't see any risk on this at all. So that's contrary, as I said, the average revenue per patient on an insurance patient is higher than some of the average revenue per patient on walk-ins today because walk-ins also -- because they are conscious about paying out of pocket so they select for the lower bed categories like general ward, sharing, et cetera.

But mostly when it comes to insurance and private corporates, we see them opting for single rooms and higher. So I don't think that's a worry at all to be -- as I said to the contrary, average revenue per patient on insurance is higher. So this is not the corporates that you should think like in the other businesses. This is a corporate which is getting channelized through insurance.

[Operator]

Next follow-up question is from the line of Damayanti Kerai from HSBC.

[Damayanti Kerai, analyst]

My question is 24/7. So you mentioned more cost-effective ways of marketing, et cetera, has helped you to improve profitability, and lower customer acquisition cost is one of such costs. So can you quantify a bit like what is the current customer acquisition cost for you compared to, say, a year back? And how different it is from your next competitor?

[Unknown Executive]

Okay. So let me highlight it from 2 perspectives. We used to spend anywhere in the range of INR 150 crores to INR 180 crores in terms of marketing expenses alone, which included customer acquisition through CRM, through prepaid, through Google, et cetera, et cetera.

That number, as we speak, we have brought it down to around INR 80 crores, both in plan, and we are, in fact, doing much better than we planned. So on a cost per acquisition, it depends on the different kinds of customers.

Today, the new opportunities that we look at, which is through our omnichannel, et cetera, the cost can be as low as [ $250 ] and can also go to the range of around $300, $400. So we are operating in that range, so that is one thing which has trumped.

But typically, what happens when you go through a digital sourcing mechanism is you virtually pay for the same customer again and again. In this case, we do the combination of originating customers through omni, attacking what we call as a subscription program called Circle, which ensures that we have continuity.

So both these combinations have given us very, very good number. And this advantage, I believe, is only available to the Apollo Group because we already have 6,000 outlets, we have hospitals. So we have multiple sourcing points. And what we are realizing is customer in today's world, no customer has 100% digital. It's always hybrid only. And so that is what is helping us.

Compared to this, some of the other competitors are primarily, in my mind, are focusing more on the digital acquisition continuously. So I think if you can get this model right, our growth story, we have enough of legroom for growth and at a reasonable calibrated cost without impacting our -- the second part of it is we are exploring delivery, if you sort of come back.

I wouldn't say come back, but to ensure that we are able to take care for acute customers, which is people who buy in an emergency. We are experimenting the different model of delivering our medicines within a much faster time frame for which we will be charging.

So that's another experience which is also bringing us new customers in certain specific zones. So within both these put together, our cost of acquisition as well as cost per order on an ongoing basis is showing a [ double ].

[Damayanti Kerai, analyst]

Sure, that's helpful. And my second question is also, if you can update us on what kind of discount you are offering as of now on your pharmacy online, offline channels? And compared to industry, like where do you stand?

[Sanjiv Gupta, executive]

Yes. So this is Sanjiv this side. So on the online side, we have anything between 13% to 13.5% as a discount, which happened in the last quarter. And if I compare it against the industry standards, industry standards could be maybe 150 to 200 bps higher than what we offer at this stage, but there also the -- there's a lot of costs for the new customers and the repeat customers, but we strongly believe that as always, since last 3, 4 years, we always have been on the lesser side versus the competition. On the off-line side, discounts are very much [ close ] to 11%.

[Damayanti Kerai, analyst]

Okay. So somewhere on a blended basis, somewhere 11%, 12% is a discount from your Pharmacy segment.

[Sanjiv Gupta, executive]

Correct. Yes, that's right.

[Operator]

Thank you very much. I now hand the conference over to the management for closing comments.

[Suneeta Reddy, executive]

So thank you, ladies and gentlemen, for joining this call. As we conclude this discussion on quarter 1 FY '25, we are optimistic about the trajectory that we have set across all business verticals.

With clear strategies in place for revenue growth, profitability enhancement and operational excellence, Apollo Hospitals is better positioned than ever to deliver unmatched value to our patients and our stakeholders. Our comprehensive and integrated healthcare offerings supported by a robust pipeline of initiatives and expansion will place us at the forefront of the industry.

We appreciate your continued interest and support, and we look forward to sharing further progress with you in the coming quarters. Thank you, and good afternoon.

[Operator]

Thank you very much. On behalf of Apollo Hospitals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.